1. Sales and variable costs of sales are expected to increase by 5 percent in the next quarter

2. All sales are on credit with 50 percent collected in the quarter of sale and 50 percent collected in the following quarter.

3. Variable cost of sales consists of 40 percent materials, 40 percent direct labor, and 20 percent variable overhead. Materials are purchased on credit. Sixty percent are paid for in the quarter of purchase, and the remaining amount is paid for in the quarter after purchase. There is no inventory. Also, direct labor and variable overhead costs are paid in the quarter the expenses are incurred.

4. Fixed production costs (other than $3,000 of depreciation expense) are expected to increase by 2 percent. Fixed production costs requiring payment are paid in the quarter they are incurred.

5. Fixed selling and administrative costs (other than $4,000 of depreciation expense) are expected to increase by 2 percent. Fixed selling and administrative costs requiring payment are paid in the quarter they are incurred.

6. The tax rate is expected to be 40 percent. All taxes are paid in the quarter they are incurred.

7. No purchases of fixtures or equipment are expected in the first quarter of 2012.

Required

A.      Prepare a budgeted income statement for the first quarter of 2012.

1. Prepare a budgeted statement of cash receipts and disbursements for the first quarter of 2012.
2. Prepare a budgeted balance sheet as of the end of the first quarter of 2012.

PROBLEM 10-3. Master Budget [LO 2] Techlabs operates a computer training center. The following data relate to the preparation of a master budget for January 2012.

1.      At the end of 2011, the company's general ledger indicated the following balances:

2.Tuition revenue in December 2011 was $80,000, and tuition revenue budgeted for January 2012 is $90,000.

3.Fifty percent of tuition revenue is collected in the month earned, and 50 percent is collected in the subsequent month. The receivable balance at the end of 2012 reflects tuition earned in December 2012.

4.40,000; rent, $5,000; depreciation on equipment, $7,000; utilities, $800; other, $2,000.

5.Expenses are paid in the month incurred. Purchases of equipment are paid in the month after purchase. The $40,000 payable at the end of 2011 represents money owed for the purchase of computer equipment in December 2011.

6.The company intends to purchase $30,000 of computer equipment in January 2012. The anticipated $7,000 per month of depreciation (see number 4) reflects the addition of $1,000 of monthly depreciation related to this purchase.

7.The note is at 10 percent per annum and requires monthly interest payments of $500. The payments are made on the 20th of each month. The principal must be paid in February of 2013.

8.The tax rate is 35 percent.

Required

1. Complete the following budgets:

A

B. 

C.